City Council
Report
City Council Meeting: June 28, 2022
Agenda Item: 11.A
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department Subject: Adoption of resolution to place revenue measure on the November 2022 Ballot and amend the relevant ordinance to reflect the proposed revenue measure and additional clarifying changes
Recommended Action
Staff recommends that the City Council:
1. Adopt a resolution to place a measure on the November 8, 2022 ballot which would increase the City’s Transient Occupancy Tax (TOT) rate by 1 percentage point for hotels and by 3 percentage points for home-shares, and make minor adjustments to Chapter 6.68 of the Santa Monica Municipal Code to clarify existing language and align outdated sections with existing practices.
2. Identify Council Members, if any, who wish to prepare arguments for or against the measure.
Summary
Santa Monica continues its gradual recovery from the ongoing disruption and economic losses that accompanied the COVID-19 pandemic. Additional revenue will provide the City the means to address community needs in the context of a slow and uncertain recovery. In response to Council direction at the May 24, 2022 Budget Study session, staff is presenting for adoption a resolution to place a measure on the November 8, 2022 General Municipal Election Ballot. The measure would amend Santa Monica Municipal Code Chapter 6.68 to set the Tax on Transients for Occupancy (Transient Occupancy Tax or TOT), paid by persons visiting Santa Monica for 30 days or less as a percentage of the total amount paid for room rental, at 15% for hotels and at 17% for home-shares. The measure would also make minor language adjustments to Municipal 2 of 7
Code Chapter 6.68 to clarify existing language and align with existing practices. The proposed resolution is attached (Attachment A).
Background
On February 8, 2022, Council directed staff to review the feasibility, timing, and structure of potential revenue measures to provide additional funding to restore and enhance City services. The potential ballot measures included increases to the Transient Occupancy and Parking Facility taxes, increases within the City’s Business License Tax, and a parcel tax to restore Library services. To assess the feasibility of these options, staff completed additional analysis and worked with Goodwin Simon Strategic Research to conduct a statistically reliable community survey of Santa Monica voters on the revenue measures staff determined to have the most promise for the November ballot: a TOT increase and a Library Parcel Tax.
At the May 24, 2022 Budget Study Session for the FY 2022-23 Proposed Budget, staff reported that, based on research and the polling results, the most viable measure at this time is an increase to the City’s TOT. The survey, or poll, demonstrated strong support for the proposed TOT increase (approximately 70%), well above the 50% plus 1 majority required for passage. Council directed staff to proceed with steps necessary to place a measure on the ballot and prepare ballot measure language.
The Proposed FY 2022-23 Budget is set against economic recovery, tempered by ongoing uncertainties and potential threats from inflation, interest rate increases, supply chain issues, continued disruptions to the tourism and retail sectors due to COVID, and long-term shifts in the office culture that has had a strong role in the City’s economy.
The Proposed General Fund Budget includes limited new investments in Council priorities but additional revenues are needed to meet current community needs. Beyond these changes, it is still anticipated that the City will require new revenues, beyond the revenue already projected for the next five years, to enhance services that address community priorities, and specifically priorities to address homelessness and enhance safety, on an ongoing basis.
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Discussion
While the City’s economy continues to recover, the City does not have sufficient revenue to return service delivery to pre-pandemic levels and has not been able to restore foundational ongoing maintenance and capital programs reduced in the past two years. Outside of these considerations, there are present challenges to address, particularly in the area of safety and homelessness. The proposed TOT increase would provide an estimated $4.1 million in annual revenue to support priorities that were affirmed in the revenue measure poll such as:
• Expansion of the Police Department’s Homeless Liaison Program (HLP) to provide services seven days a week.
• Expansion of the Police Department’s Downtown Services Unit (DSU) and the Public Services Officer (PSO) program. These expanded teams, together, would provide the needed coverage levels for the Downtown, Pier, and Beach areas.
These teams would further increase resources responding to people experiencing homelessness, and would allow public safety resources that have been shifted to deal with increased activity in these areas to be redistributed to neighborhoods and patrols throughout the City.
• Expansion of the City’s homeless multidisciplinary outreach teams’ work beyond the Downtown area.
• Redesign of the SAMOSHEL interim housing program to accommodate 24/7 intakes, giving additional options for after-hours intake and facilitating SMPD transports for people experiencing homelessness and non-urgent behavioral health issues. These initiatives were discussed by Council during the May 11, 2022, Special Meeting on Homelessness.
The City’s TOT rate is 14%, last increased in 2004. Santa Monica visitors also pay a tourism marketing district or TMD assessment - which goes directly to Santa Monica Travel and Tourism to fund hotel marketing - currently set at fixed rates of $1.90-$6.25 per room night. Varying with the average nightly room rate of each hotel from the prior year, the TMD assessment approximates to 1-2% of the room rate, for an effective total 4 of 7
tax and assessment rate of approximately 15-16%. This rate is comparable to the City of Los Angeles and below that of some neighboring or other destination cities.
The table below shows Santa Monica compared to other major California tourist destinations.
City TOT Rate Additional Assessment Total Equivalent
Inglewood 15.5% 15.5%
Palo Alto 15.5% 15.5%
Malibu 15% 15%
Anaheim 15% TMD 2% 17%
Ojai 15% 15%
Garden Grove 14.5% TMD 2.5% 17%
Los Angeles 14% TMD 1.5% 16.5%
Santa Monica 14% TMD $1.90-$6.25/ room night
(approx. 1-2%)
15-16%
San Francisco 14% TMD 2.75% (highest tier) 16.75%
Oakland 14% TBID $1.50/ room (>50 rooms) Over 14%
Long Beach 12% TMD 3% 15%
Staff proposes a 1% increase for hotels and 3% increase for home-shares which collectively will raise approximately $4.1 million annually once fully implemented. The higher amount applied to home-shares considers the greater regulatory oversight that home-shares require, and the greater impacts these home-shares have on residential neighborhoods and areas not typically subject to the impacts of commercial endeavors.
This tax would be paid for entirely by visitors to Santa Monica. With the proposed increase, Santa Monica’s effective rate for hotel visitors - including the TMD assessment - would be approximately 16%-17%, still comparable to the cities shown above. If the City moves forward with this measure, staff recommends an associated Advisory Board made up of stakeholders and community members to provide nonbinding recommendations to staff and Council on the uses of some portions of TOT revenues.
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Staff recommends that the City continue community outreach and planning in conjunction with placing this measure on the November ballot. The recommended ballot language is as follows:
Santa Monica Transient Occupancy Tax draft ballot language:
To address homelessness, improve 911 emergency response times and neighborhood police protection, make public areas safer and cleaner, including streets, sidewalks, parks, and the beach, and provide other vital City services, shall the City of Santa Monica increase the transient occupancy tax – which is paid entirely by overnight visitors – by 1% for hotels and motels, and by 3% for home-shares, providing approximately $4.1 million annually, until ended by voters, with all funds benefiting Santa Monica.
The proposed resolution (Attachment A) includes the recommended ballot language and measure language and authorizes designated City Council members to submit arguments and rebuttals concerning the measure. Finally, the resolution directs the City Clerk to transmit a copy of the measure to the City Attorney and directs the City Attorney to prepare an impartial analysis of the effects of the measure on the existing law as well as on the operation of the measure.
Arguments and rebuttals shall be submitted in accordance with State Elections Code Sections 9280-9287 and Santa Monica Municipal Code Section 11.04.125. The Elections Official will set the deadline for submitting arguments as 14 days from the date the election is called on the measure and the deadline for submitting rebuttals to arguments as 10 days after the deadline for submitting arguments on the measure, or the date fixed by the City Clerk, whichever date is later.
To establish an additional level of accountability on the use of the additional revenues raised from this ballot measure, staff is recommending that Council create an advisory committee that would make non-binding recommendations on the use of the additional TOT revenues. Staff is proposing a 5-person committee appointed by the City Council for 2-year terms. Staff recommends that the Committee would include one member 6 of 7
representing the hospitality industry, one member representing the homeless behavioral health services community, one member from the Santa Monica Chamber of Commerce, and two residents. Additional detail on the Committee structure will be included in a resolution to be adopted by Council by February 28, 2023, if the ballot measure is successful.
Additional Clarifications to the TOT Ordinance
In addition to the proposed rate changes, staff proposes minor revisions to clarify ordinance language detailed in the table below. Municipal Code Chapter 6.68 contains language created and not updated since the mid-1960s, with the result that some text is unclear or outdated with current practice. Staff proposes to update this language along with the proposed rate changes if voters approve the proposed ballot measure. If voters do not approve the proposed ballot measure, staff will return to Council at a later date with these proposed ordinance revisions. These minor adjustments will have no impact on the amount of taxes owed.
Municipal Code
Section
Content Change and Rationale
6.68.010 Definitions • Transient: to align with the State Revenue and Taxation Code • Rental: to clarify that rental charges includes all required room charges except charges prohibited from inclusion by Revenue and Taxation Code section 7282.3
6.68.040 Collection • Remove the quarterly payment option that is no longer in use • Update title to align with other taxes
• Clarify timing of payment and add instructions for when payment falls on holidays and weekends per current practice
6.68.055
Determination of
Date Payment Made
• New section outlining existing practices and to provide clarity on the effective date of when the City treats a payment as being made
6.68.060 Interest
and Penalties
• Update to include interest payment information
• Clarify penalty charges for delinquent payment
6.68.070 Failure to
collect and report tax
• Update title to reflect content
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6.68.075 Manner of
giving notice
• Updated manner and effective date of providing notice
6.68.080 Records • Update to four years consistent with limitations period in Revenue and Taxation Code section 7283.51
6.68.100 Exceptions • Add exemption for foreign diplomats consistent with federal regulations and other applicable law
6.68.110
Administrative
Penalties
• Clarify that penalties in this section refer to administrative penalties
Attachment A shows the revisions within the ordinance text.
Financial Impacts & Budget Actions
The cost of placing the measure on the ballot will be covered by the FY 2022-23 election budget. Staff expects that voter approval of the transient occupancy tax measure will increase General Fund revenues by approximately $1.4 million in FY 2023-24 due to the timing of implementation, and an anticipated $4.1 million per year in the following years. There is no anticipated financial impact associated with the other ordinance revisions.
Prepared By: Gigi Decavalles-Hughes, Director
Approved Forwarded to Council
Attachments:
A. 2022-6-21 - TOT - Resolution Ballot Measure
B. Exhibit 1 - PDF v.2 6-23-22
C. Budget Session Staff Report - May 24, 2022 Council Meeting (Web Link) D. PowerPoint Presentation